Primer on rUMB — The Reward Tokens of Umbrella Network
Umbrella Network’s native token, the UMB, can be staked by token holders with Umbrella’s validator nodes to earn rewards. The rewards are distributed, however, in a different form called rUMB tokens or Umbrella Reward Tokens. rUMB reward tokens are designed to incentivize long-term holding.
In decentralized finance, liquidity farming & staking are very much dictated by the Annual Percent Yield, or APY. Given the current risk/reward nature of the DeFi industry, there exist very attractive APYs, oftentimes over 100%, which have driven aggressive growth in the ecosystem. Yearn.Finance, for example, launched in the summer of 2020 and initially offered over 500% APY when YFI was initially farmed.
The problem arises when there are users who have no affiliation or patience to learn more about a specific DeFi project and are just looking for avenues to park their farming capital. While this is great for boosting Total Locked Value (TVL), they end up not adding any significant value to the project except the sell-pressure they create by continuously dumping their yields on the open market.
We looked at the two scenarios of whether to give the reward tokens instantly or after a period of time, and after extensive discussions and planning with both stakeholders and industry partners, decided to take the approach of awarding the stakers with rUMB which will have a specified vesting schedule. This means the reward UMB tokens will not be instantly exchangeable to UMB tokens.
This design principle is to encourage long-term holding. There will also not be any large token unlocks for private investors or even the founding team. The team tokens and the tokens purchased by early investors will all be subjected to a slow linear vesting schedule with no cliffs. And with a strong emphasis on Umbrella Network being a community focused project, we have allocated 60% of the total token supply for the community.
rUMB is redeemable for UMB tokens after certain business achievements are fulfilled or in one year, whichever occurs first. There will be 4 achievements, and corresponding to each achievement will be a variation of UMB token:
Achievement 1 -> rUMB1
Achievement 2 -> rUMB2
Achievement 3 -> rUMB3
Achievement 4 -> rUMB4
The rUMB(i) -> UMB swap will take place after the Achievement(i) is hit or the one year has elapsed — whichever occurs first.
The table above shows the distribution and vesting schedule of the rUMB(i) tokens. As shown in the table, the tokens will be generated from launch starting with rUMB1. The tokens will be distributed from day of launch to the completion of the first achievement, or one year — whichever is earlier.
For example, if we launch the project on February 9th, 2021, the endtime for Achievement1 will be February 8th, 2022, with a token distribution rate of 111,872 tokens per day. After launch there are two possible scenarios — we may achieve Achievement1 before one year elapses, let’s say it’s done within 8 months. In that case the tokens will be distributed only across those 8 months, after which redemption of the tokens will occur from rUMB1 to UMB. If we are unable to reach Achievement1 by the end of the one year period, then conversion will start for rUMB1 to UMB tokens at the one year mark at a redemption rate of 223,744 tokens per day, with redemption complete within 6 months.
The idea here is to ensure that token holders in the project are incentivized to stay invested in Umbrella and are rewarded for their long-term support. Linking the achievements, and the related ongoing development updates, with the conversion schedule allows token holders to attract more appreciation from the wider markets over time as the project evolves, as well as more easily absorb the potential sell-pressure created by the reward tokens as they will vest over a linear schedule.
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